The Islamic University of Gaza

Accounting Information System

The Expenditure Cycle :

Purchases and Cash Disbursements Procedures

Dr. Hisham Madi

Chapter
4-1
 Computer-Based Purchases and
Cash Disbursements Applications

 CBAS technology can be viewed as a

continuum with two extremes:
 automation - use technology to improve
efficiency and effectiveness
 reengineering – use technology to
restructure business processes and firm
organization
Chapter
4-2
 Computer-Based Purchases and
Cash Disbursements Applications

Automating Purchases Procedures Using Batch Processing

Technology

Data Processing Department: Step 1

The purchasing process begins in the data processing department,
where the inventory control function is performed.
When inventories are reduced the system determines if the
affected items in the inventory subsidiary file have fallen to their
reorder points.

Chapter
4-3
 Computer-Based Purchases and
Cash Disbursements Applications

Purchasing Department
Alternative one
 System automatically prepares the PO documents and sends
them to the purchasing department for review and signing.
 The purchasing agent then mails the approved POs to the
vendors and distributes copies to other internal users.
Alternative two
 Distributing the POs directly to the vendors and internal users,
thus bypassing the purchasing department completely

Chapter
4-4
 Computer-Based Purchases and
Cash Disbursements Applications

Alternative three
Electronic Data Interchange
 The computer systems of both the buying and selling companies
are connected via a dedicated telecommunications link.

Chapter
4-5
 Computer-Based Purchases and
Cash Disbursements Applications

Data Processing Department: Step 2

 a copy of the PO is sent to data processing and used to create a
record in the open PO file.
Receiving Department
 When the goods arrive from vendors, the receiving clerk
prepares a receiving report and sends copies to the stores (with
the goods), purchasing, AP, and data processing
Data Processing Department: Step 3
 The data processing department creates the receiving report file
from data provided by the receiving report documents.
Chapter
4-6
 Computer-Based Purchases and
Cash Disbursements Applications

Data Processing Department: Step 3

Then a batch program updates the inventory subsidiary file from

the receiving report file.

The program removes the ‘‘On Order’’ flag from the updated

inventory records and calculates batch totals of inventory receipts

Accounts Payable
When the AP clerk receives the supplier’s invoice, he or she

reconciles it with the supporting documents that were previously

placed in the AP pending file
The clerk then prepares a voucher, files it in the open voucher file,

and sends a copy of the voucher to data processing.

Chapter
4-7
 Computer-Based Purchases and
Cash Disbursements Applications

Data Processing Department: Step 4

 The voucher file is created from the voucher documents. A batch
program validates the voucher records against the valid vendor
file and adds them to the voucher register

Chapter
4-8
 Computer-Based Cash Disbursements

Data Processing Department

 the system scans for vouchers currently due
 Checks are printed for these items, and each check is recorded in
the check register
 Records these checks in the check register
 Batch totals of closed AP and cash disbursements are prepared
for the general ledger update procedure.

Chapter
4-9
 Computer-Based Cash Disbursements

Cash Disbursements Department

 The cash disbursements clerk reconciles the checks with the

transaction listing and submits the negotiable portion of the

checks to management for signing.
 The checks are then mailed to the suppliers. One copy of

each check is sent to AP

Accounts Payable Department
 Upon receipt of the check copies, the AP clerk matches them

with open vouchers

Chapter
4-10
 REENGINEERING THE
PURCHASES/CASH
DISBURSEMENTS SYSTEM

Data Processing
The following tasks are performed automatically.
The inventory file is searched for items that have fallen to their
reorder points.
A record is entered in the purchase requisition file for each item
to be replenished
Requisitions are consolidated according to vendor number.
Vendor mailing information is retrieved from the valid vendor
file.
Purchase orders are prepared and added to the open PO file.
A transaction listing of purchase orders is sent to the purchasing
Chapter
department for review. 4-11
 REENGINEERING THE
PURCHASES/CASH
DISBURSEMENTS SYSTEM

Receiving Department
 the receiving clerk accesses the open PO file in real time by
entering the PO number taken from the packing slip.
Data Processing
 Quantities of items received are matched against the open PO
record, and a Y value is placed in a logical field to indicate the
receipt of inventories.
 A record is added to the receiving report file.
 The inventory subsidiary records are updated to reflect the
receipt of the inventory items.
Chapter
4-12
 REENGINEERING THE
PURCHASES/CASH
DISBURSEMENTS SYSTEM

 The general ledger inventory control account is

updated.
 The record is removed from the open PO file and
added to the open AP file, and a due date for
payment is established.

Chapter
4-13
 REENGINEERING THE
PURCHASES/CASH DISBURSEMENTS
SYSTEM

 Each day, the DUE DATE fields of the AP records

are scanned for items due to be paid
 Checks are automatically printed, signed, and
distributed to the mail room for mailing to vendor
 vendors receive payment by electronic funds transfer
 The payments are recorded in the check register file.

Chapter
4-14
 REENGINEERING THE
PURCHASES/CASH DISBURSEMENTS
SYSTEM

 Items paid are transferred from the open AP file to

the closed AP file.
 The general ledger AP and cash accounts are
updated.
 Reports detailing these transactions are transmitted
via terminal to the AP and cash disbursements
departments for management review and filing.

Chapter
4-15
 The Automated System

 Improving ability to manage inventory needs.

 Inventory requirements are detected as they arise and
are processed automatically.
 As a result, the risks of accumulating excessive
inventory or of running out of stock are reduced
 With this advantage, however, comes a control
concern.
 Program errors or flawed inventory models can cause
firms to find themselves suddenly inundated with
inventories or desperately short of stock.
Chapter
4-16
 The Automated System

Better Cash Management

 The automated system promotes effective cash
management by scanning the voucher file daily for
items due, thus avoiding early payments and missed
due dates.
 By writing checks automatically, the firm reduces labor
cost, saves processing time, and promotes accuracy

Chapter
4-17
 The Automated System

To control against unauthorized payments

 voucher file should be validated by comparing the
vendor number on the voucher against the valid
vendor file.
Time Lag.
 A lag exists between the arrival of goods in the
receiving department and recording inventory receipts
in the inventory file
 When sales clerks do not know the current status of
inventory, sales may be lost Chapter
4-18
 The Automated System

Excessive Paper Documents

 All operations departments create documents, which
are sent to data processing, and which data processing
must then convert to magnetic media.
 Paper documents add costs because they must be
purchased, stored, prepared, handled by internal mail
carriers, and converted by data processing personnel

Chapter
4-19
 The Reengineered System

 it uses real-time procedures and direct access files to

shorten the lag time in record keeping.

 It achieves a significant reduction in paper documents

by using digital communications between departments
and by digitally storing records

Chapter
4-20
 The Reengineered System

Control Implications
 This system removes the physical separation between
authorization and transaction processing.
 Computer programs authorize and process POs as
well as authorize and issue checks to vendors.
 The system provides management with detailed
transaction listings and summary reports

Chapter
4-21
 The Reengineered System

Accounting Records And Access Controls.

 Advanced systems maintain accounting records on
digital storage media, with little or no hard-copy
backup.
 Sarbanes-Oxley legislation requires organization
management to implement adequate control security
measures to protect accounting records from
unauthorized access and destruction

Chapter
4-22